Offshore paydays loom in bourse boom

Katherine Jimenez

Adidas, L'Oreal, Google and Johnson & Johnson are already household names. Now they could become part of the family after being identified as some of the best buying opportunities for Australian retail investors in 2014.

In the past 12 months, offshore investing has provided Aussie investors with some of the strongest returns seen in years. Owning shares in the Nikkei stock market would have returned investors 52 per cent on local currency terms in the 12 months to December, while the US bourse would have delivered a 46 per cent gain.

The US, the euro zone and Britain are seen as fruitful places for investors in 2014. Photo: Daniel Acker

Investment experts such as Shane Oliver - head of investment strategy at AMP Capital - are convinced that more growth from international shares is to come in the year ahead. Yet some believe that after the strong run in the US and Nikkei share markets during the past 18 months, the big opportunities in 2014 will be more confined to Europe and North Asia and to a lesser extent the US.

''From a valuation perspective … global shares, on our measures, is still about 10 per cent undervalued'', he says.

''Within that, from a valuation perspective, the markets particularly in Europe, [are] perhaps the cheapest, US slightly cheaper than Japan, which is about fair value.

''I think this new trend towards better returns from international shares probably has a fair way to go.''

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For Scott Kelly, head of investment products and services at UBS wealth management, what we are about to witness in 2014 is a ''period of synchronised global growth'', with all the major regions expected to grow. So what international shares are likely to provide good value?

AMP's Oliver believes its ''deep cyclical sectors like building materials, industrial, energy stocks and mining stocks'' that represent the best opportunities as ''they are the one that will benefit most if the recovery continues in US, Europe and Japan.

He also named US manufactures such as Caterpillar Inc and Procter & Gamble, along with blue-chip stocks Amazon and eBay, which he described as ''very robust companies''.

Value in tech sector

The recovering tech sector is another area where he sees value, with the Nasdaq hovering some 1000 points below its peak of 5000.

''It's continuing recovery is something that investors are increasingly noticing,'' he said. ''Often the best way to play that sector, in the absence of doing a lot of work, is to put your focus on the blue chip tech stocks - Apple, eBay, Intel, Amazon or even Microsoft''.

Equity Trustees chief investment officer George Boubouras sees good value over the medium term in what he calls ''behavioural stocks'', such as Linkedin, Facebook, Twitter and Google. In the electronics space, he likes Samsung and Bayer, while in the payments systems sector, it's eBay, MasterCard, Visa and Amex that stand out.

He is also a fan of brewery company SABMiller, as well as Loreal, Johnson & Johnson, Procter & Gamble and Unilever.

Looking across the global landscape, three key geographies stand out for UBS; the US, Euro zone and China. Within those regions UBS' Global Chief Investment Office searches for themes that it believes will benefit from growth in those areas.

In the US, they like the IT sector and financials. ''In IT, there are attractive valuations and balance sheets and cash flow generation remains very strong'', said Joey Mouracadeh, UBS wealth management head of portfolio advisory, while also pointing out that the increased investments among corporates were likely to benefit the tech sector.

Within China, said UBS's Kelly, the main thematic is around policy changes. ''So you ask yourself what will be the beneficiary?'', he said. ''We have just added, for example, ICBC to our core international list.''

"In the Euro zone, Germany is outperforming France and will probably continue to do so. The way we have decided to play that in the equity space is to add Adidas to our list, which not only is 41 per cent exposed to Europe in terms of its earnings, but will get a tremendous boost from the [soccer] World Cup coming."

Although keen on some of the large cap names, namely Google and Samsung, Kelly said, they were also upbeat on UK mid-cap stocks. ''We think the UK will continue to recover … but the way to get exposure to that UK recovery is not necessarily in the top end of the market'', he said.

''So not necessarily FTSE 100 stocks but rather the mid cap area, which have more of a domestic focus.''

Before investing, CommSec general manager for retail distribution Brian Phelps cautions investors to ''know and understand the market'' that they are investing in.

Just as important, he notes, is knowing and understanding the tax rules of investing in another jurisdiction, as well as the paperwork requirements.

Accessing global shares

The best ways to access global stocks are through direct investing, exchange-traded funds (ETFs) and managed funds.

Most banks, such as CommSec, Etrade, Macquarie and soon NAB, offer online exchange platforms or access.

CommSec has one of the biggest platforms, giving clients access to more than 30 international exchanges. UK and US trades cost $US65 ($73) or 0.75percent, whichever is greater. The cost is higher for countries like Singapore and Germany – $US130 or 1 per cent.

A safer point of access is an ETF. The security is traded on the ASX and holds prominent stocks from overseas exchanges such as the US. CommSec charges $19.95 for trades of up to $10,000 for a US ETF. The management fees for Bell Direct’s iShares ETF are between 0.4per cent and 0.74 per cent a year.

A managed fund is also popular. Here a specialist fund manager selects a group of stocks and you buy into the fund, but the costs are higher. Fees are about 4 per cent. CBA offers access to managed funds for a fee of about 2.5 per cent.